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HQ 544190

September 26, 1988

CLA-2 CO:R:C:V 544190 EK

CATEGORY: VALUATION

Special Agent in Charge
Kennedy Airport Area
Jamaica, New York

RE: Ruling Request Regarding Shipment of Foreign Fabric From a Foreign Trade Zone

Dear Sir:

This is in response to your memorandum of March 29, 1988, requesting internal advice regarding merchandise shipped through a foreign trade zone.

FACTS:

You state that a United States company (hereinafter referred to as company A) purchases fabric from a foreign vendor and has it shipped directly to a U.S. foreign trade zone. The fabric is then given free of charge to a second United States company (hereinafter referred to as company B) who is unrelated to company A. You indicate that company B may partially process the fabric in the foreign trade zone prior to exporting it to its own related foreign manufacturer (hereinafter referred to as company C).

The fabric is then assembled into finished garments by company C. The finished garments are then sent back to the United States and entered by company B, the importer of record. Company C is paid by company B for services rendered in assembling the merchandise. Subsequent to entry into the United States, company B sells the finished garments to company A, the original purchaser of the uncut fabric. No reimbursement is made by company B to company A for the furnishing of the fabric.

ISSUE:

Whether transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a(b); TAA), is applicable in appraising the final imported product and if so, what is to be included in determining the transaction value.

LAW AND ANALYSIS:

Transaction value, the preferred method of appraisement, is defined as "the price actually paid or payable" for merchandise when sold for exportation to the United States, plus certain additions including the value of any assist. With respect to assembled merchandise, section 152.103(a)(3) of the Customs Regulations [19 CFR 152.103(a)(3)] states the following:

The price actually paid or payable may represent an amount for the assembly of imported merchandise in which the seller has no interest other than as the assembler. The price actually paid or payable in that case will be calculated by the addition of the value of the components and required adjustments to form the basis for the transaction value.

In determining the transaction value of imported merchandise, the value, apportioned as appropriate, of any assist will be added to the "price actually paid or payable." In this case, the fabric is supplied to company B, without charge, by company A. Company B then supplies the foreign assembler, company C, with the fabric. The value of the fabric should be added to the "price actually paid or payable" by company B to its related party, company C. To the extent that the fabric is "partially" processed in the foreign trade zone, such is included in determining the value of the assist.

The value of the assist includes transportation costs to the place of production. See, 19 CFR 152.103(d)(1). Therefore, all costs incurred in transporting the fabric to company C's assembly plant are included in determining the value of the assist. This includes costs incurred in transporting to the foreign trade zone, as well as those incurred transporting the fabric from the foreign trade zone to the assembler's plant.

Before a determination can be made regarding the applicability of item 807.00, Tariff Schedules of the United States, to the imported finished garments, more detailed
information is needed regarding the processing of the fabric performed in the foreign trade zone. See, 19 CFR 10.14(b).

You further inquire as to whether the transactions between the foreign assembler, company C, and company B are considered arms-length transactions. This becomes an issue in determining whether the price established between the parties is influenced by the relationship. The relevant provision with regard to related parties states the following:

The transaction value between a related buyer and seller is acceptable . . . if an examination of the circumstances of the sale of the imported merchandise indicates that the relationship between such buyer and seller did not influence the price actually paid or payable. See, section 402(b)(2)(B).

In determining whether the relationship between the parties influences the price of imported merchandise, if it is shown that the buyer and seller, albeit related, buy and sell from one another as if they are not related, this indicates that the price is not influenced by the relationship between the parties, and appraisement pursuant to transaction value is proper. If the price is determined in such a manner which is consistent with the normal pricing practice of the industry, or with the way the seller deals with unrelated buyers, then it is considered not to have been influenced by the relationship between the parties.

Therefore, in this case, if it appears that the fee charged by company C to its related party, company B, to assemble the merchandise fits within the above criteria, then the transactions are considered to be at arms length.

Your final question pertains to whether the mark-up in value in the sale between company B, the importer of record, and company A, the original purchaser of the fabric and the ultimate purchaser of the final product in the United States, should be considered in appraising the merchandise. The sale between company B and company A appears to be a domestic sale in the United States and should not be considered in determining transaction value.

It should be noted that even though the information submitted is somewhat hypothetical in nature, we have attempted
to provide your office with as much guidance as possible. Nonetheless, a change in any particular fact could change our response.

Sincerely,


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